In the latest decision on the vexed question of the correct calculation of holiday pay under the Working Time Regulations (“WTR”), the Employment Appeal Tribunal (“EAT”) has ruled that both non-guaranteed and voluntary overtime should be included in the calculation under the NHS Terms and Conditions of Service

Background

A recent series of cases has dealt with the issue of what should be included in the calculation of holiday pay, the basic principle being that the calculation should be based on “normal remuneration”. But what does this mean in practice and, in particular, does it include variable elements of pay such as bonuses, commission and overtime?

Last year in Dudley Metropolitan Borough Council v Willetts, the EAT decided that regular voluntary overtime payments would form part of “normal remuneration” if they were paid over a sufficient period of time. This is a question of fact and degree, depending on how the overtime was worked in practice.

In the latest case, a group of NHS employees argued that the calculation of their holiday pay had failed to take account of two types of overtime. The first was non-guaranteed overtime, where a task needed to be completed by the same employee after the end of their normal shift. The second was voluntary overtime, where an employee simply volunteers to work some extra shifts.

The Employment Tribunal (“ET”) found that the non-guaranteed overtime should be included, but the voluntary overtime was not part of normal remuneration because the employees were not required to do this work under their contracts of employment. The ET also found that voluntary overtime was not part of “pay” under the NHS contract, although again the non-guaranteed overtime was included.

The employees appealed this decision in relation to the voluntary overtime, and the NHS Trust cross-appealed the decision that non-guaranteed overtime was part of pay under the relevant contract.

The EAT’s decision

The EAT concluded that both the non-guaranteed and the voluntary overtime should potentially be included in the calculation of holiday pay.

  • In relation to the voluntary overtime, the EAT followed the approach in Dudley (above). Under the WTR, this should be included in the holiday pay calculation if it was sufficiently regular and settled to be taken into account in the calculation of “normal remuneration”. The question of whether the overtime was sufficiently regular would need to be assessed for each individual employee.
  • On the contractual point, the EAT ruled that the purpose of the relevant clause in the NHS Terms and Conditions was to calculate holiday pay on the basis of what the employee would in fact have been paid if he or she had been at work. There was no basis for distinguishing between non-guaranteed and voluntary overtime, so both types of overtime should be included in calculating holiday pay under the contract.

Implications

The case has been sent back to the ET to assess the correct payment for each employee. In the meantime, the NHS Trust has applied for permission to appeal the decision to the Court of Appeal.

On the general question of whether voluntary overtime should be included in the calculation of holiday pay under the WTR, the EAT has confirmed that the Dudley approach is correct. If the voluntary overtime is regular and settled, it should be included in the calculation. This is rather unsatisfactory for both employers and workers, as it will depend on the facts of each case. But it is now very clear that regular overtime payments should in principle form part of the calculation, irrespective of the type of overtime being worked.

Perhaps the more significant aspect of this case is the finding that the NHS Terms and Conditions require both types of overtime to be included in the calculation of holiday pay – including any voluntary overtime which has been worked, whether it was regular or not. This has potentially wide-ranging implications, and could prove very expensive for the NHS. The terms and conditions in question apply to most NHS staff, and could result in a very large holiday pay bill during a financially difficult time. This is undoubtedly the main reason why the NHS Trust is seeking to appeal the judgment.

Flowers and others v East of England Ambulance Trustjudgment available here